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12 Regional Bank Stock Picks from Jefferies

NEW YORK ( TheStreet) -- First-quarter earnings season is shaping up to be a rough one for many regional banks, according to Jefferies analyst Ken Usdin.

"Slower loan growth, lower mortgage fees, and negative seasonal trends make for a tough 1Q set-up," Usdin wrote in a report on Thursday. He also questioned whether the difficult operating environment was "fully reflected" in Wall Street earnings estimates. Changes in sell-side analysts' earnings estimates can be a major driver for stock prices, up or down.

With the market pushing long-term rates higher, despite the best efforts of the Federal Reserve to hold rates down through its monthly purchases of $85 billion in long-term securities, Usdin estimates that gain-on-sale margins for newly originated mortgage loans compressed 13 basis points in the first quarter from the fourth quarter. Combined with a 4% sequential decline in mortgage loan applications, Usdin expects "a 15%-20% decline in production revenues."

Looking ahead, Jefferies forecasts "production revenues to decline 25%-30% Y-Y in '13 and '14."

So investors may be looking at a slew of earnings estimate cuts by analysts during and after first-quarter earnings season.

Continued announcements of efforts to control expenses will be music to the ears of investors and analysts. Many of the largest U.S. banks have branded long-term cost-cutting programs in place, including Bank of America (BAC), with "Project New BAC," Wells Fargo (WFC - Get Report), with "Project Compass," KeyCorp (KEY) (KEY), with "Keyvolution," and SunTrust (STI), with its "Playbook for profitable growth."

Of course, a focus on cost cutting, along with the annual focus on the return of capital to investors in the wake of the Federal Reserve's annual stress test process, makes for a rather depressing formula for investors looking for solid earnings growth, along with prospects for long-term growth of their investments. Bank stocks have seen a major recovery in 2012 and so far in 2013, but the credit recovery theme will not drive shares forever.

"While macro trends remain decent and valuation (1.5x tangible book, 12.6x on '14E EPS) is reasonable, we see limited near-term catalysts for positive EPS revisions," Usdin wrote.

Regional bank stocks are "pretty reasonable (1.5x tangible book, 12.6x on '14E EPS) and sentiment feels fairly complacent," Usdin wrote. For regional bank stock picks, the analyst said "our top long-term picks remain biased toward a barbell strategy," with four large-cap regionals rated "buy," and eight small and mid-cap names:

Large-cap Picks from Jefferies

  • Fifth Third Bancorp(FITB - Get Report) of Cincinnati. The shares closed at $15.99 Wednesday, trading for 9.5 times the consensus 2014 Earnings estimate of $1.69 a share, among analysts polled by Thomson Reuters. Usdin estimates the company will post first-quarter earnings of 39 cents a share. His 2013 EPS estimate for Fifth Third is $1.60, increasing to $1.65 in 2014.
  • Huntington Bancshares(HBAN - Get Report) of Columbus, Ohio. The stock closed at $7.19 Wednesday, trading for 10.4 times the consensus 2014 EPs estimate of 69 cents. Usdin estimates the company will report first-quarter EPS of 15 cents. His 2013 EPS estimate for Huntington is 69 cents, rising to 72 cents in 2014.
  • PNC Financial Services Group(PNC - Get Report) of Pittsburgh closed at $65.13 Wednesday and traded for 9.5 times the consensus 2014 EPS estimate of $6.83. Usdin estimates PNC will post first-quarter EPS of $1.54. His 2013 EPS estimate is $6.50, rising to $6.65 in 2014.
  • Wells Fargo closed at $36.67 Wednesday, trading for 9.4 times the consensus 2014 EPS estimate of $3.89. Usdin estimates the company will report first-quarter earnings of 87 cents a share. His EPS estimate for 2013 is $3.60, rising to $3.70 in 2014.

Small and Mid-Cap Picks from Jefferies

  • Associated Banc-Corp(ASBC) of Green Bay, Wis. The shares closed at $14.57 Wednesday and traded for 13.5 times the consensus 2014 EPS estimate of $1.08. Jefferies analyst Emlen Harmon estimates the company will report first-quarter EPS of 23 cents. His 2013 EPS estimate for Associated is $1.05, increasing to $1.13 in 2014.
  • First Midwest Bancorp(FMBI - Get Report) of Itasca, Ill. The stock closed at $12.51 Wednesday, trading for 12 times the consensus 2014 EPS estimate of $1.04. Harmon estimates the company's first-quarter EPS will come in at 21 cents. His full-year EPS estimate for First Midwest is 95 cents for 2013, increasing to $1.10 in 2014.
  • Oriental Financial Group(OFG) of San Juan, Puerto Rico, closed at $15.11 Wednesday and traded for 7.9 times the consensus 2014 EPS estimate of $1.92. Harmon estimates the company will report first-quarter EPS of 26 cents. His 2013 EPS estimate for Oriental Financial Group is $1.55, rising to $1.85 in 2014.
  • Boston Private Financial Holdings(BPFH). The shares closed at $9.60 Wednesday, trading for 11.6 times the consensus 2014 EPS estimate of 83 cents. Jefferies analyst Casey Haire estimates Boston Private will post first-quarter earnings of 16 cents. His EPS estimate of 2013 is 80 cents, increasing to 85 cents in 2014.
  • First Niagara Financial Group(FNFG) of Buffalo, N.Y. The stock closed at $8.59 Wednesday, trading for 10.7 times the consensus 2014 EPS estimate of 80 cents. Haire estimates first-quarter earnings will be 17 cents a share. He estimates that First Niagara will earn 75 cents a share for all of 2013, and also in 2014..
  • First Republic Bank(FRC) of San Francisco. The shares closed at $37.42 Wednesday and traded for 12.1 times the consensus 2014 EPS estimate of $3.09. Haire estimates the bank will report first-quarter EPS of 76 cents. His 2013 EPS estimate for First Republic is $3.05, declining slightly to $3.00 in 2014.
  • Signature Bank(SBNY) of New York closed at $77.49 Wednesday, trading for 16 times the consensus 2014 EPS estimate of $4.83. Haire estimates first-quarter EPS will be $1.03. His full-year EPS estimate for 2013 is $4.40, rising to $4.85 in 2014.
  • Western Alliance Bancorporation(WAL) of Phoenix. The shares closed at $13.46 Wednesday and traded for 11.8 times the consensus 2014 EPS estimate of $1.14. Haire estimates first-quarter EPS will come in at 46 cents. He estimates Western Alliance will have full-year earnings of $1.90 a share for 2013, and the same level in 2014.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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